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Energy and Economic Growth

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  • David I. Stern

    () (Department of Economics, Rensselaer Polytechnic Institute, Troy, NY 12180-3590, USA)

  • Cutler J. Cleveland

    () (Department of Geography and Center for Energy and Environmental Studies, Boston University, Boston, MA 02215, USA)

Abstract

Physical theory shows that energy is necessary for economic production and therefore growth but the mainstream theory of economic growth, except for specialized resource economics models, pays no attention to the role of energy. This paper reviews the relevant biophysical theory, mainstream and resource economics models of growth, the critiques of mainstream models, and the various mechanisms that can weaken the links between energy and growth. Finally we review the empirical literature that finds that energy used per unit of economic output has declined, but that this is to a large extent due to a shift from poorer quality fuels such as coal to the use of higher quality fuels, and especially electricity. Furthermore, time series analysis shows that energy and GDP cointegrate and energy use Granger causes GDP when additional variables such as energy prices or other production inputs are included. As a result, prospects for further large reductions in energy intensity seem limited.

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Paper provided by Rensselaer Polytechnic Institute, Department of Economics in its series Rensselaer Working Papers in Economics with number 0410.

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Date of creation: Mar 2004
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Handle: RePEc:rpi:rpiwpe:0410

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Citations

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Cited by:
  1. Magazzino, Cosimo, 2011. "Energy consumption and aggregate income in Italy: cointegration and causality analysis," MPRA Paper 28494, University Library of Munich, Germany.
  2. Recalde, Marina, 2011. "Energy policy and energy market performance: The Argentinean case," Energy Policy, Elsevier, vol. 39(6), pages 3860-3868, June.
  3. Alam, Shaista & Fatima, Ambreen & Butt, Muhammad S., 2007. "Sustainable development in Pakistan in the context of energy consumption demand and environmental degradation," Journal of Asian Economics, Elsevier, vol. 18(5), pages 825-837, October.
  4. Zilio, Mariana & Recalde, Marina, 2011. "GDP and environment pressure: The role of energy in Latin America and the Caribbean," Energy Policy, Elsevier, vol. 39(12), pages 7941-7949.
  5. Nyamdash, Batsaikhan & Denny, Eleanor, 2011. "The economic impact of electricity conservation policies: A case study of Ireland," MPRA Paper 28384, University Library of Munich, Germany.
  6. Gupta, Geetu & Sahu, Naresh Chandra, 2009. "Causality between Electricity Consumption & Economic growth : Empirical Evidence from India," MPRA Paper 22942, University Library of Munich, Germany.
  7. Raimund Bleischwitz, 2010. "International economics of resource productivity – Relevance, measurement, empirical trends, innovation, resource policies," International Economics and Economic Policy, Springer, vol. 7(2), pages 227-244, August.
  8. Hrushikesh Mallick, 2007. "Does Energy Consumption Fuel Economic Growth In India?," Working Papers id:1299, eSocialSciences.
  9. Costantini, Valeria & Martini, Chiara, 2010. "The causality between energy consumption and economic growth: A multi-sectoral analysis using non-stationary cointegrated panel data," Energy Economics, Elsevier, vol. 32(3), pages 591-603, May.
  10. Amiri, Arshia & Zibaei, Mansour, 2012. "Granger causality between energy use and economic growth in France with using geostatistical models," MPRA Paper 36357, University Library of Munich, Germany.
  11. Kerstin, Enflo & Kander, Astrid & Schön, Lennart, 2008. "Electrification and energy productivity," CIRCLE Electronic Working Papers 2008/16, Lund University, CIRCLE - Center for Innovation, Research and Competences in the Learning Economy.
  12. Fei, Li & Dong, Suocheng & Xue, Li & Liang, Quanxi & Yang, Wangzhou, 2011. "Energy consumption-economic growth relationship and carbon dioxide emissions in China," Energy Policy, Elsevier, vol. 39(2), pages 568-574, February.
  13. Bartleet, Matthew & Gounder, Rukmani, 2010. "Energy consumption and economic growth in New Zealand: Results of trivariate and multivariate models," Energy Policy, Elsevier, vol. 38(7), pages 3508-3517, July.
  14. Sorrell, Steve, 2009. "Jevons' Paradox revisited: The evidence for backfire from improved energy efficiency," Energy Policy, Elsevier, vol. 37(4), pages 1456-1469, April.
  15. Hazuki Ishida, 2011. "Causal relationship between fossil fuel consumption and economic growth in Japan: a multivariate approach," Discussion Papers in Economics and Business 11-13, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  16. Rehana Siddiqui, 2004. "Energy and Economic Growth in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 43(2), pages 175-200.

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